Maryland Lawyers Rise to IOLTA Challenge
~Ask banks to raise IOLTA rates to support legal services;
Wachovia Bank responds~
By Janet Stidman Eveleth
Ironically, while banking interest rates have risen dramatically in the last
two-and-a-half years, interest on attorney IOLTA accounts has remained flat.
Interest on Lawyer Trust Accounts (IOLTA), the primary funding source for civil
legal services for Maryland's low-income residents, is still at .59 percent.
In recent months, the Maryland State Bar Association (MSBA) and the Maryland
Legal Services Corporation (MLSC), troubled over this situation, have put out
an attorney alert, asking Maryland attorneys to encourage their banks to raise
IOLTA interest rates and support legal services to the poor. Once again, Maryland
lawyers have come through and one major financial institution, Wachovia Bank,
has already increased its IOLTA interest rates.
In the last 34 months, the Federal Reserve Board has raised its short-term
federal funds target rates 15 times, from an historic low of 1 percent in June
2003 to today's 4.75 percent, and financial analysts predict further increases
are imminent, reports MLSC Executive Director Susan Erlichman. Yet, despite
this dramatic change in the interest rate environment, "the average net yield
paid on IOLTA accounts is still .59 percent."
Maryland attorneys hold the key to increasing IOLTA rates. "Financial institutions
are more responsive to concerns about particular products and services when
they hear them directly from their customers," stresses Erlichman. This is
one of the reasons MSBA and MLSC created the IOLTA Honor Roll in 2001, to encourage
financial institutions to pay favorable rates of return on IOLTA.
Last month, when one Maryland attorney heard the alert and became aware of
the low IOLTA interest rate, he contacted his bank, Wachovia, and the Bank
positively responded. Now, Wachovia Bank – Maryland's second-largest
holder of IOLTA deposits – has joined the MSBA/MLSC Interest on Lawyer
Trust Accounts Honor Roll, after the rate disparity issue was brought to the
bank's attention by one of its attorney customers.
"Wachovia is tying IOLTA interest rates to the federal fund's interest rate," explains
Erlichman, who reports that PNC Bank has done the same thing. "The national
trend is to require banks that hold IOLTA deposits to pay rates on higher-balance
IOLTA accounts (generally accounts with funds of $100,0000 or more.) "This
is a reasonable and fair treatment of IOLTA deposits."
"We try our best to be a good corporate citizen in all of the markets that
we serve, and given the recent rise in interest rates, frankly, it was just
the right thing to do," explains James Themides, Wachovia's Regional President. "We
are more than happy to do this and appreciate the business that we have with
the IOLTA accounts and with all law firms in Maryland."
IOLTA Rate History
Created by the Maryland General Assembly in 1982, IOLTA remains one of
the state's primary funding sources for civil legal services for Maryland's
low-income citizens today. "At the time of the program's inception, interest
rates paid on IOLTA accounts averaged approximately 5 ½ percent," recalls
Erlichman. When interest rates began slipping, the "rates on IOLTA accounts
dropped as well, followed by painful funding cuts. Despite the best efforts
of legal aid providers, Maryland's legal services-delivery system witnessed
a slippage in the number of people it was able to serve in 2003," she laments.
In mid-2003, "the short-term federal funds rate dropped to an unprecedented
low of 1 percent. The net yield paid on IOLTA deposits at that time averaged
approximately .5 percent and revenue dropped precipitously," Erlichman continues.
In 2004, the Maryland General Assembly passed "a slight increase in court filing
fee surcharges to help fund civil legal services and a crisis was averted." This
legislation has enabled legal aid providers to maintain services at current
levels, which only meets 20 percent of the need.
Ironically, when the interest rate environment began to turn around in 2004,
IOLTA programs "let out a collective sigh of relief as the Federal Reserve
Board continued to steadily raise its short-term target rate 15 times to its current
rate of 4.75% – its highest level in five years," declares
MLSC's Executive Director. However, unlike the rapid downward adjustments made
to IOLTA when rates were in decline, most financial institutions in Maryland
have not yet adjusted IOLTA rates to reasonably reflect the current enhanced
interest rate environment. "As of January 2006, the net yield on IOLTA deposits
in Maryland averaged only .59 percent," Erlichman adds.
MSBA/MLSC Honor Roll
There are currently 16 banks participating in Maryland's IOLTA Honor Roll
Program (see page 2), which requires an average net yield of 1.5 percent
or higher on IOLTA accounts.
"Given a short-term federal rate indicator of 4.5 percent, all lawyers should
expect to see their banks listed among Honosr Roll members," stresses Erlichman. "Many
Honor Roll participants became members after learning of the importance of
IOLTA from their depositors."
"Have you checked the rate of return on your IOLTA deposits lately?" asks
Erlichman? "When you do, you may be dismayed to find that the net yield paid
on your IOLTA deposits is not what you would reasonably expect in today's current
interest rate environment." She encourages all attorneys to contact their financial
institutions if they are not listed on the Honor Roll.
"Let them know that a fair rate of return on IOLTA helps ensure that
Maryland's most vulnerable citizens have access to critically-needed services," she
asserts. "Let them know that, as a Maryland attorney, you expect a fair
rate of return on your IOLTA deposits. And if your bank is on the Honor Roll,
let them know that you greatly appreciate their participation in this most
important program."
"On behalf of everyone associated with IOLTA, we are delighted to have Wachovia
join the ranks of Gold Honor Roll members," notes F. Vernon Boozer, chairman
of the Maryland Legal Services Corporation. "We hope to see many more banks
join them in the coming months."
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